Investor Tax Implications

E

In a dividend reinvestment plan, the stockholder must pay taxes on the dividend amount, even though stock and not cash has been received.

Let's go through each statement and determine which one is least correct for an investor in a high personal tax bracket, given the proposed tax plan that would reduce capital gains tax rates:

A. A 2-for-1 stock split is announced for a stock that the investor currently holds. The company had split the stock because the stock price had increased beyond the desired price range and is expected to continue to grow. This is good news to the investor because it means that any gains from increased stock value will be taxed at a new lower capital gains rate when the stock is sold.

This statement is correct. A stock split does not have any direct tax implications. It merely increases the number of shares owned by the investor without changing the overall value of the investment. When the investor sells the stock, the capital gains will be taxed at the new lower capital gains rate, which would be beneficial for the investor.

B. None of these statements are correct.

This statement implies that none of the statements provided are correct. Since at least one of the statements is correct (Statement A), this option is incorrect.

C. One of the companies in the investor's portfolio recently announced that it will embark on a stock repurchase plan. The lower capital gains tax rate will reduce the investor's taxes if he/she decides to tender some shares of stock in the company.

This statement is correct. A stock repurchase plan allows a company to buy back its own shares from the market. If the investor decides to participate in the repurchase plan and tender some shares, any gains from selling those shares will be subject to the lower capital gains tax rate. Therefore, the investor's taxes would be reduced in this scenario.

D. All of these statements are correct.

This statement implies that all of the statements provided are correct. However, we have already determined that Statement B is incorrect. Therefore, this option is incorrect.

E. The stock of a company that pays high cash dividends and has a dividend reinvestment plan (DRIP) is a good investment for this individual because he/she will receive more money that can then be reinvested in the company's stock.

This statement is least correct for an investor in a high personal tax bracket under the proposed tax plan. While it is true that the stock of a company with high cash dividends and a dividend reinvestment plan (DRIP) can provide additional funds for reinvestment, it does not directly relate to the reduction in capital gains tax rates. The tax plan being considered focuses on lowering capital gains tax rates, not dividends. Therefore, this statement is the least correct in the given context.

In conclusion, the correct answer is option E.